Helpful statistics on legal spending for lawyers working in private equity

Apperio has polled nearly 600 in-house lawyers who work in private equity – and has produced five reports and many helpful statistics on legal spending – which are summarized here with links to additional resources. 

While there are plenty of studies of legal across business and corporate counsel, there have been very few that delve into the specialty of private equity (PE). We serve this community of professionals and commissioned a research firm to help us develop a thoughtful study. 

So, almost two years to the month, we launched the results of an independent survey of legal spending in private equity. And then we did another and another. In total, we’ve run three surveys polling nearly 600 lawyers in private equity and published five reports. 

Much of this survey data still has value. For that reason, we’ve recently gone back through all the reports to curate a neatly organized list of the resources published around the findings. 

Study 1: Rocketing scrutiny, eroding trust: The changing PE legal spend landscape

Published in July 2020, this survey polled 100 senior in-house legal stakeholders in the US and UK who were employed at a PE firm. A few of the findings included the following:

• US PE firms spend an average of $10.5 million on outside legal services, while PE firms in the UK spend an average of $8.6 million. 
   
• In the UK, scrutiny of legal costs has climbed 41% since 2015 and in the US, it’s increased by 24% since 2018.
   
• Only 53% of senior in-house legal stakeholders in the US and 55% in the UK trust their law firms to bill them promptly. In addition, just one in three US and 45% of UK respondents trust their external legal counsel to bill them accurately.
   

Additional resources: 

• Blog: Typical M&A deals cost US private equity $353k in legal spend (and other outside counsel statistics)
• Private Equity Wire: Why private equity is increasingly scrutinising legal costs
• LawNext: Market pushes private equity firms to scrutinize legal spend, but many lack the technology, survey finds 

Study 2: Responsibility Without Control? Challenges Facing Private Equity Legal Leaders in 2021 

This survey report was published in January 2021. It surveyed 160 in-house legal professionals at PE organizations, across the US and UK.

Among the key findings:

• 62% of in-house lawyers in PE are accountable for selecting preferred law firm partners, however, fewer than half (46%) are responsible for approving budgets on new legal projects.
   
• About one-fifth of respondents say certain legal matters always go over budget, according to the survey. These matters include investment financing (28%), regulation (22%), litigation (21%) and fund structuring (17%).
   
• More than half (54%) say finance teams have resigned themselves to the idea that legal expenses will always be unpredictable. That suggests that over-budget matters are becoming a cultural norm.
   

Additional resources:

• Blog: Four ways legal spend in private equity underscores broad challenges in corporate legal
• Blog: Diversity is the top factor in selecting outside counsel say private equity lawyers
• Private Equity Wire: In-house PE legal teams accountable for outside counsel costs but lack authority to manage expenditures, finds Apperio study 

Study 3: Scale vs. agility in private equity – Mid-sized PE firms are edging out their larger competitors with better management of legal expenses  

This report, published in June of 2021, was a new analysis based on the poll from the second study (above). It broke out findings from 106 respondents – 46 that worked for mid-sized PE firms and 60 who were employed by large PE firms – for the purpose of comparing the answers. 

The report classifies large firms as those with greater than $10 billion in assets under management (AUM). Mid-sized PE firms are those with between $3 billion and $10 billion in AUM in this study. 

Among the key findings:

• One in five large PE firms are “often shocked” by the size of legal invoices. Seven in 10 large PE firms reported they were billed for legal work that was, in hindsight, considered unnecessary or redundant.
   
• About one in five large PE firms (22%) say they make no effort to actively manage legal costs compared to just 4% of mid-sized firms.
   
• 74% of mid-sized PE firms enforce a formal budget approval process for new matters, compared to just 55% of large PE firms.
   

Additional resources:

• Artificial Lawyer: 22% of Large PE Funds ‘Don’t Manage Legal Spend’
• Private Funds CFO: Mid-market PE firms are more disciplined on legal cost
• AlphaWeek: The 10 Processes Private Equity Firms Can Use to Control Legal Costs  
• Blog: Predictable legal pricing outweighs lower cost in high-end legal work 

Study 4: The legal spend landscape for 2022 

This report was first released in November of 2021. It polled 300 senior legal and finance leaders in financial services – including but not limited to PE – who are responsible for legal spend. 

Among the key findings:

• Seven in 10 respondents (71%) say the legal team is “more valued” (38%) or “much more valued” (33%) in the wake of the pandemic. 
   
• Respondents reported the legal workload (70%), legal department headcount (66%) and overall legal costs (67%) have all grown over the last three years. 
   
• CFOs and other finance leaders were more bullish on legal tech within their organization: 82% said spending on legal tech would grow in the next year compared with 67% of their peers in legal.
   

Additional resources:

• Legal IT Insider: Appreciation for legal teams grows as ‘more for less’ agenda falls out of favour, survey shows
• Above the Law: Stat of the Week –  GCs Getting Respect
• Blog: 11 legal tech tools lawyers in financial services aim to implement
• Blog: The top law department metrics that financial services companies are tracking  

Study 5: Controlling Costs in Private Equity – The PE Legal Spend Landscape for 2022

This report, published in January 2022, is based on a subset of respondents from the fourth study (above). It breaks out answers from just the 100 senior legal (63%) and finance (37%) professionals who identified as working in private equity.

Among the key findings:

• Alternative fee arrangements or AFAs (76%), specialized software for managing legal costs (68%) and centralizing all legal spend through the legal department (51%) ranked among the most effective techniques in-house lawyers have for controlling costs.
   
• Among the top tech tools in which PE in-house legal teams plan to invest include risk management (64%), legal spend management (54%) and e-billing (46%). (Also see: E-billing vs. Legal Spend Management: Similarities and Differences).
   
• Most respondents (62%) say the in-house team is measuring the value they contribute to the business. The top measures legal departments in private equity are tracking include the “outcome of legal matters” (68%), the “hourly cost per lawyer” (60%), and “risk exposure” (50%).
   

Additional resources: 

• Infographic: Private equity's changing legal spend priorities
• Private Equity Wire: New Apperio report highlights PE's changing legal spend priorities 

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The Apperio platform provides in-house legal teams with a proactive approach to controlling legal spend. See for yourself and schedule a live demo by emailing info@apperio.com.